15 July 2024

International Cases

In the matter of Show Cause Notice issued to m/s reliance paints pakistan



MRTP/ Competition Laws

Buyers/resellers (whether dealers, distributors, or retailers) must remain free to determine their resale price

In facts of present case, Respondent was a company engaged in manufacturing and supply of paints and allied products in Karachi and interior Sindh. Complainant was also active in business of paints, performance coating and specialty chemicals. Both Respondent and Complainant were undertakings within meaning and scope of clause (q) of sub-section (1) of Section 2 of Competition Act, 2010 as they were engaged in production, supply and distribution of goods i.e. paints and allied products, within Pakistan. Complainant alleged that, Respondent was a manufacturer of paints and allied products, and was engaged in anti-competitive practices by fixing minimum resale price, in contravention of Section 4 of Act. On 17 August 2015, Commission constituted an enquiry committee to probe into matter for prima facie violation(s) of Section 4 of Act. Enquiry Committee recommended initiating proceedings under Section 30 of Act.

As per clause (k) of sub-section (1) of Section 2 of Act, 'relevant market' for purposes of Act had been defined as market which shall be determined by Commission with reference to a product market and a geographic market and a product market comprises of all those products or services which were regarded as interchangeable or substitutable by consumers by reason of products' characteristics, prices and intended uses. With regard to relevant geographic market, Bench observed that, paint products (including those manufactured by the Respondent) could be sold/ purchased in entire country, though different freight rates, among other things, might be applicable. Further, in case of majority of paint companies, their dealership networks were prevalent across Pakistan. Accordingly, upstream geographic market consisted of entire territory of Pakistan.

Product market, in instant case, was determined as a market for dealers or distributors/retailer of Respondent’s products. Though, there might be price difference owing to freight cost and other characteristics of product, Respondent could appoint dealers or distributors/retailers and sell its products in entire territory of Pakistan. Accordingly, relevant downstream geographic market was defined as whole of Pakistan. In absence of Complainant having adduced any credible evidence to support its allegations, Circular did not contain mandatory instructions for Respondent's dealers to cease from taking up dealership of competing manufacturers or supplier of paint in tato. Furthermore, one of dealers of Respondent had stated that, it was engaged in selling other local brands. Accordingly, it could not be concluded that, Respondent imposed an effective exclusive supply obligation on its dealers. Dealer or distributor/retailers were never prevented by Respondent in dealing with competing brands. Respondent had not contravened Section 4 of Act, by merely requesting its dealers or distributors/retailers not to sell its products to dealers not authorized by the Respondent.

In instant case, Respondent had evidently imposed upon its dealers or distributor/retailers a minimum resale price to sell its products which constitutes a violation of clause (a) of subsection (2) of Section 4 of Act as such arrangements were considered to be restrictive of intra-brand competition and price fixation by their object. Act in general, and Section 4 in specific dictated that, buyers/resellers (whether dealers, distributors, or retailers) must remain free to determine their resale price. Agreements/ arrangements perpetuated by Respondent were restrictive of intra¬brand competition amongst Respondent's dealers or distributors/retailer as same impaired their ability to compete on prices in sale and distribution of Respondent's products. Such arrangements also included monitoring of resale price so fixed by Respondent and penalizing dealers or distributors/retailers on allowing discounts to the end-consumers.

Respondent had engaged certain mystery shopping agents for policing its dealers or distributors/retailers in order to monitor resale price arrangements. It was also found that, where a dealer or distributor/retailer was found to be deviating from Respondent's pricing mechanism, Respondent imposed a penalty on them by cancelling their margin at first. Further, such penalties could include even stoppage of supply or cancellation of their dealership. Therefore, Commission was of considered view that, Respondent had contravened Section 4(2)(a) read with Section 4(1) of Act. Respondent during course of enquiry never came forward to rectify its behavior, rather Respondent had capitalized on anti-competitive practice throughout almost three years. Hence, in terms of Regulation 37 of General Enforcement Regulations 2007 read with Section 38 of the Act, penalty imposed upon Respondent. Furthermore, Respondent was directed to immediately cease its contravention of Section 4 of Act.

Tags : Re-sale price Fixation Contravention

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